Cash Comparables

[appraisal411]

I recently had an appraisal assignment in a townhome project. I had a cash sale that helped to support the listing price, but when I began researching the comp. it was brought to my attention that the comp was a cash sale where no appraisal was conducted prior to closing. It was also brought to my attention by a real estate agent that another unit in the project did not appraise for much less then the contract price of my subject property the year before with no distress or unique factors to consider. After reviewing the sales in the project further I realized that this was the hightest sale in the project EVER. Would you think it ethical to use this as comp being that it did not appear to be the best indicator of market value? Would you omit it or simply not give it as much weight??? Please advise!!

 

[Pamela Crowley (Florida)]

Suggestion:

Slowly and carefully read the Definition of Market Value on the Fannie forms.
Do this at least three times.
After you've done this, come back here and let us know what you think about this situation you're in now.

 

[Tudor]

From my experience cash sales are your best indicators (as long as the parties involved don't own other units in the complex and are using this sale as a base to raise the value of all the other units). So you might want to check the ownership history of that comparable and see if they own numerous units.

Also take into consideration any actives and pendings. I don't care what another property appraised for, unless I have seen a copy of the appraisal, because I have no idea if it is accurate or not (there might be peanut butter on it). So just ignore whatever that RE said about a prior appraisal of another unit.

After doing the above, if I find that the cash sale is clean, I will use it. Now you just have to consider how much weight you give it, that will depend on how similar, recent, etc... your other comparables are.

 

[Randolph Kinney]

I recently had an appraisal assignment in a townhome project. I had a cash sale that helped to support the listing price, but when I began researching the comp. it was brought to my attention that the comp was a cash sale where no appraisal was conducted prior to closing. It was also brought to my attention by a real estate agent that another unit in the project did not appraise for much less then the contract price of my subject property the year before with no distress or unique factors to consider. After reviewing the sales in the project further I realized that this was the hightest sale in the project EVER. Would you think it ethical to use this as comp being that it did not appear to be the best indicator of market value? Would you omit it or simply not give it as much weight??? Please advise!!

My bold.

First, if anyone pays all cash for a property, no appraisal is necessary unless the buyer wants one. Appraisals are necessary when a mortgage is involved because the lender requires one in order to make the loan. As long as the sale is arms length and meets the definition of market value, it qualifies to be used as a valid comparable.

I don't understand the next concern on the next comparable. If that comparable was similar to your subject, was an arms length transaction with no undue influence, so what if it was the highest sale ever? What is different about it characteristics compared to the subject, other that the sales price? If there are differences, you adjust for them in the gird.

What are similar properties selling for outside of this complex?

 

[Mike Boyd]

Yes, you should use that all cash sale. However, one sale does not a market make. What Pam is alluding to is the most probable selling price and your other comps clearly point to a different value. You should use it, though, to demonstrate your awareness of that sale and then explain that it is an anomoly.

 

[Smokehouse]

It is nice to see some research into comparables being used...good job!

 

[Appraisal Coach]

A good rule of them when deciding on any comparables, which to use and which to discard is to first gather your comps, then discard the highest and the lowest...weed out the anomolies. This is known as distilling and is a simple statistical technique. Sometimes you cant explain (nor do u need to) the reason why some properties sell for more or less than they should..sometimes there is no explanation, they just do. (price vs. value)

Keep them all in your workfile, but anomilies dont need to be in reports.

Good luck!

Ed
Appraisal Coach

 

[Mike Boyd]

Keep them all in your workfile, but anomilies dont need to be in reports.

Good luck!

Ed
Appraisal Coach

I disagree if only to deflect stips from underwriters and agents and the owner who may know about that sale. "Head 'em off at the pass" as Hopalong used to say.

 

[Appraisal Coach]

A reasonable reason to disagree (we can both be right) Nonetheless I see no reason to put in a report. Your workfile is your appraisal...your report is your deliverable.

They know about it, you also know about it...big deal, you are the appraiser, you decide what goes in....

Appraise with confidence ! (my mother always said)


-Ed

 

[Mike Garrett RAA]

Is this sale a good indicator of value? Maybe, maybe not. You, as the appraiser must make that decision. Lets say you have the following:

Sale #1 $100,000 with 10% down payment
Sale #2 $105,000 with 5% down payment
Sale #3 $ 95,000 with nothing down
Sale #4 $100,000 with $25,000 down
Sale #5 $115,000 cash purchase

Which three sales would be most representative of your market?

Would you use all five sales in your appraisal report?

What is the "most probable" sales price?